Initial claims hit lowest in 5 months, continuing claims hit record

The U.S. Labor Department came out with its latest weekly report. The data were mixed because initial claims are pointing to recovery, but continuing claims continue to hit new records. The long and short: the U.S. Labor market remains weak and will continue to be weak for the foreseeable future.

For the week ended June 6th, we saw 601,000 initial claims on a seasonally adjusted basis, the lowest such figure since January. That brings the widely tracked 4-week average down to just under 622,000. But remember, you have to go back to 1982 to get a figure as high before this particular recession. Moreover, continuing claims hit a record 6.82 million, demonstrating that companies simply are not hiring – and that is going to be a drag on growth (no job, no spending). With the unemployment rate at 9.4% in May, we should expect 10% by the end of summer.

Nevertheless, I should note that the unadjusted numbers do look better than the seasonally-adjusted numbers. The 4-week average for initial claims is 539,000, more than 80,000 lower than the adjusted number. For continuing claims, there is also a huge discrepancy, with the 4-week average continuing claims figure having fallen for every week since April 4th to 6.13 million. This is 600,000 less than the seasonally adjusted figure.

My takeaway from this is that seasonal adjustments may be driving the continuing claims figure higher and misleading analysts into believing people are not finding jobs. The same dynamic is also apparent in the unemployment numbers where the unadjusted establishment survey showed a job increase of 319,000 in May while the seasonally-adjusted figure showed we lost 345,000 jobs. You should note that the Birth/Death model added 220,000 jobs to the unadjusted number so the number is not as bullish as it seems (see my Friday post “Payroll data mixed despite the bullish headline job loss figure“).

So, where does that leave us? When will this recession end? A lot of professional economists are now seeing a potential end by the end of Summer. Richard Berner and David Greenlaw at Morgan Stanley and Paul Krugman of Princeton are three notables here. Robert Gordon of Northwestern University even suggests that we are already in recovery. I have been saying for a while that we are looking at late this year or early next year. I suspect that the trend will be much clearer come the end of summer, especiallyregarding seasonal adjustments.

With this in mind, I recently started a poll. The question: When will the U.S. Economy recover? Here are the four potential answers:

I am on with the “green sh%%ts brigade. So it will be summer, mate.

Ed, you’re right, it’s Q4 or Q1 2010.

Recovery is a long way off, sometime in 2010.

That’s an idiot question. There will be no recovery to speak of.

Please stop by and take the poll or add your two cents. It is interesting to see what blog readers are thinking.

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

I define recovery simply as the end of recession as defined by the NBER. In all likelihood, they will not call this until well into 2010. In anticipating their call, we will need to see improvement across four areas: employment, consumption, output, and income. Right now, it is looking like income and consumption may have already bottomed. Since these are leading indicators, we should expect output and employment to follow unless we get an unforeseen large economic shock.